Leading Bitcoin Exchange Suffers Run on the Bank - Yet Another SL/Bitcoin Hype Parallel

Trouble began for Mt.Gox when the feds started noticing its financial paperwork was a mess, and it was acting as a middleman for the internet drug trade. Bitcoin prices on the exchange plunged accordingly. That was only the start of the bad news. Today, people with thousands (or even millions) of dollars or yen in real money tied up in Bitcoins can't touch it—there have been huge delays and blackout periods when customers try to remove their funds. Earlier this month, Mt.Gox stopped all withdrawals completely, and this month has seen the value of a single Bitcoin plunge from around $700 to a low of $75.

And while it's not a one-to-one comparison, it all reminds me of the time during the Second Life hype wave in 2006-2008, when a number of unregulated but popular Linden Dollar exchanges experienced a somewhat similar trajectory. This from January 2008:

Like that scene from It's a Wonderful Life except with club babes, a sentient squirrel, and the Spanish guy from Street Fighter II, there's at least one run on a bank going on in-world right now. Residents who've put Linden Dollars in one of the many in-world virtual banks must withdraw their funds by January 22 or risk losing them, since that's when the Lindens just announced they'll ban all such services. Unless, that is, a bank's proprietors can prove they're regulated by a real world government body.

In the case of Linden Dollars, Linden Lab stepped in to insist that these L$ exchanges abide by real world regulations, and consequently, the Linden Dollar value has remained stable. Without any authority to impose that rule, it's unclear if Bitcoin can continue functioning.

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Yeah looks like anyone who had money in Mt Gox is screwed. I have been playing around with some cyrpto currency lately on Crypsy, which is another exchange that could probably suffer an attack as well. I wouldn't keep large amounts of coins in the online wallets of these exchanges. There are also bots out there that can tell if you're signed into your wallet from home.

I've been collecting Dogecoin lately, it has a pretty big community Hamlet you should check it out. They are aiming to be more of an online tipping currency for content creators.

Neal Stephenson may have predicted this. He did an article for a special issue of Time, talking about virtual money, and saying that the stronger the encryption on the system, the safer the money. Just how encrypted are Bitcoins, if at all, if transactions are available on a public directory for anyone to peruse?

The problem Harper is that the way Bitcoin works are there are offline wallets that you can download to your desktop to hold your own bitcoins in and then there are these exchanges that you can have "virtual wallets" on where they hold the bitcoin in your account and you see how much you have when you login to the website. Only problem is if this website gets hacked they have access to the website's bank of bitcoin and they can move the money out from there.